Name: _______________________

ECO 200-810 Principles of Macroeconomics Homework #6 due 5/4/01

  1. Briefly describe the advantage and drawbacks to an open vs. closed economy with respect to policy, efficiency and competition.

    2.  

     
     
     
     
     
     
     
     
     
     
     

  2. Consider the following model economy:


    3. C = 60 + .8Y G = 100

    I = 100 T = 0

    X-IM = 10

    1. What is the impact of a 10% increase in G on equilibrium expenditure if the MPM = 0?

      2.  

       
       
       
       
       
       

    2. What is the impact of a 10% increase in G on equilibrium expenditure if the MPM = .05?

     
     
     
     
     
     
  3. The tables below describe the domestic production possibilities of widgets and thingamabobs for Timmyland and Tangyland (yes, it is the end of the semester and I am not very creative):
    4. Timmyland
    Tangyland
    widgets
    things
    widgets
    things
    60
    0
    40
    0
    45
    5
    30
    4
    30
    10
    20
    8
    15
    15
    10
    12
    0
    20
    0
    16
    1. What is the opportunity cost of 1 thingamabob in Timmyland? In Tangyland?

      2.  

       
       
       
       
       
       

    2. Draw the production possibilities frontiers for each country.


    3. Which country has an absolute advantage in the production of widgets? In the production of thingamabobs? Which country has a comparative advantage in the production of widgets?

      4.  

       
       
       
       
       
       
       
       

    4. Suppose the countries specialize completely in their comparative advantage good and trade with each other. Timmyland trade ministry offers to trade at the rate of 10 widgets for 20 thingamabobs. With Tangyland accept this trade? Why or why not?